Monthly Auto Loan And Lease Payments Hit A Record High In Q3: Experian

Affordability continues to be a concern in the auto finance industry, as new- and used-car monthly payments hit another record in the third quarter, according to Experian Automotive.

The average new-vehicle monthly loan payment was a record $530 in the third quarter, up about 6% from a year ago. The average new-vehicle monthly lease payment was $430, up 4%. The average used-car monthly loan payment also hit a record high of $381, up 4%, according to Experian.

At the same time, some auto lenders — notably several big banks — have confirmed they’re making a “strategic pullback” from auto loans, said Melinda Zabritski, Experian’s senior director of automotive financial solutions.

Average monthly payments hit record highs in Q3 for auto loans and leases, Experian said.Getty

That’s especially true at the risky end of the credit spectrum. In the third quarter, auto loans to customers with subprime credit accounted for 21.2% of the total, down 1.5% from a year ago, and the lowest in 11 years, according to Experian.

For the last few years, consumers largely offset higher sticker prices by taking out longer-term loans and by leasing, but those trends appear to be flattening out.

The average term on a new-vehicle loan in the third quarter was 68.5 months, down 0.5 months from a year ago, according to Experian. Zabritski speculated that incentivized deals on relatively shorter-term loans may have played a role in the third quarter.

Repaying a loan over a longer term keeps monthly payments lower. The tradeoffs are, the consumer pays more interest over the life of the loan, and the customer is more likely to be upside down at trade-in time. That’s when the customer owes more on the trade-in than the car is worth.

In that case, to pay off the old loan the customer often rolls that so-called negative equity into the loan on the new purchase, borrowing an even bigger amount and getting even further into debt.

Meanwhile, leasing accounted for 33.9% of new-vehicle volume in the third quarter, down just slightly from 34.1% a year ago. Some manufacturers have said they intended to put more incentive money into cut-rate auto loans instead of leases.